Hi David,

indeed an interesting question.

Let's start from the back: economic crisis are increasingly related to what Richard Koo calls "balance-sheet" recessions where bubbles lead to over-leverage and deleveraging when the bubble bursts.

This type of crises have indeed become more frequent as central banks moved towards inflation-targeting regimes, thereby neglecting changes in asset prices (in contrast to monetarist approaches that target growth in the money base). However, I have not seen recent research that has tried to make this link explicitly.

However, in the end, it is banks that create liquidty, at least in a fractional banking system, independently of how central banks define their targets. This is why even during times of the gold standard liquidity crises existed. The question is why are they more frequent now than then.

One answer lies with thr type of finance: And here it is mainly mortgage financing for housing that has expanded, partly as a result of a deliberate policy to incentivise middle- and low-income households to buy property.

So, there seems to be an empirical regularity as you describe but properly more linked to specific policies rather than to a broad-bases regime shift.

Happy to exchange with you further on this.

Best,

Ekkehard

Dear Ekkehard,

Thanks for the insightful response. So, would you see the shift to financialization as more the result of direct policy than an overall structural transformation? Moreover, do you equate neoliberalism and finacialization as symbiotic, or ontologically prior...?

Yours,

D.

I am still trying to wrap my head around the debate as evidenced by the following articles.

Article Financialization and neoliberalism

Article The neoliberal (counter-) revolution

I guess the answer is: both! There was a structural shift after the 1960s towards neoliberalism as capital owners tried to gain the upper hand again (or shall we say, return to the long-run "r>g" regime in Piketty's sense). But my impression is that policy makers accelerated that shift as they continued to make electoral promised that required ever more deficit-spending. In exchange for easier acces to funds, they liberalised capital markets. Actually if you regress IMF's financial liberalization index on changes in public debt, the two are highly correlated.

So, I would say that finanicialization are symbiotic and co-evolve.

Best,

Ekkehard

Great, thanks! Now, to pick your brain even further - would you say the arguments of over-accumulation, (cf. Baran & Sweezy & the so-called Monthly Review School)  contributory to the debate? Furthermore, if capitalism is by nature a credit-based system, in which loans are the modus operandi of capitalist social processes, at what moment do we suggest the real side is a primary driver of crises? or, regardless, is the extent to which financial fragility ensues technological over-investment the prima facie of social scientific pertinence?

Dear David

I think that there may be a complementary relationship between overinvestment and excessive financial liquidity. This is also the point stressed in large part by Schumpeter in Business Cycles, for instance in the case of railroadization. A wonderful contribution on  these themes is Carlota Perez 2009 article in CJE 

http://cje.oxfordjournals.org/content/33/4/779.abstract 

I propose - together with Andrea Fumagalli - to read both New Economy crisis and Subprime crisis by following this line of thought (see our 2011 contribution in the IJPE "A finanzialized economy of production"). 

My 2014 JEE article with Alessandro Caiani and Antoine Godin is a first attempt to propose a theoretical framework to analyze the possible technological push to lead towards a pervasive and dangerous finanzialization.   

Attached you may find both my articles.